Debits and Credits

A debit indicates that either increases of asset or expense account or decrease a liability. A credit indicates that either increase of liability or decrease of expense account or asset.

 

Day to day business transactions are recorded in a minimum of two accounts, while recording of business transactions you should identify at least two accounts and you must give one account debit and another account is credit.

 

One account can receive a debit entry, this amount can enter on the left side of the particular ledger account and another account can receive a credit entry, this amount can enter on the right side of the particular account.

 

 

 

Example, when a company has taken a loan from the bank of $2000, here two transactions are involved, one is company bank account and another account is payable account.

 

 

Accounting Entry

 

 

 

Telephone expenses incurred during the month is $400, here two accounts are involved one account is telephone expense and another account is cash or bank account.

 

 

Accounting Entry

 

 

 

Also, sometimes more than two accounts will involve in day to day business transactions. Example, company has taken loan from the bank, while making repayment of loan, there are three accounts will involve one is company bank account, interest account and another one is loan account.

 

 

Accounting Entry

 

 

 

▪ whenever cash is received, debit to cash account

 

▪ whenever cash is paid, credit to cash account

 

Example, if a company received cash 1000$ from ABC customer, here you have to give cash account to debit and give credit to the ABC customer.

 

 

Accounting Entry

 

 

 

You must give debit to the following accounts

 

Expenses

 

Assets

 

Losses

 

Investments

 

 

You must give credit to the following accounts

 

Incomes

 

Gains

 

Revenues

 

Liabilities

 

Equity

 

 

 

 

Related Topics

 

What is Petty Cash?

 

What is Bookkeeping?

 

Journal Entries